Cars to consumer goods: How Indians are now loosening their purse strings

After the twin reforms of demonetisation and GST, India’s economic recovery is gaining momentum

Bloomberg

August 23, 2018, 14:22 IST

From Mercedes-Benz AG to Unilever, companies in India are finding power to pass on higher costs to consumers, a sign that demand in the world’s fastest-growing major economy is well-entrenched.

After the twin reforms of demonetisation and GST, India’s economic recovery is gaining momentum. Businesses are taking advantage of the solid demand to raise prices, lifting profits, but also fanning inflation at a time of higher oil prices and a currency slump.

More than 1,200 manufacturing firms -- both small and large -- polled by the Reserve Bank of India (RBI) reported input price pressures and an increase in selling prices. The central bank raised interest rate twice since June to the highest in two years to curb price pressures and support the rupee amid a sell-off in emerging market currencies.

“There is a sense that the economy has come out of the difficult phase,” Harsh Pant, a professor of international relations at King’s College in London, said, referring to the pick up in manufacturing activity as consumer confidence improves. The decision of companies to raise prices “seem to be reflecting this underlying reality,” he said.

Here’s a look at sectors that have got their pricing mojo back and others on the cusp of rediscovering it:

AUTOMOBILES

With double-digit growth in monthly vehicle sales for most of the year so far, companies including Suzuki Motor Corp.’s India unit, Ashok Leyland Ltd. and Mercedes-Benz are raising prices. Maruti Suzuki increased prices last week by up to Rs 6,100 across models citing higher commodity prices, distribution costs and adverse foreign exchange rates. Mahindra and Mahindra also plans to hike prices by up to 2 per cent from August.

STEEL

A surge in global steel prices has given Indian steelmakers, including JSW Steel, Tata Steel, and Steel Authority of India the ability to raise product prices by 8 percent to 10 per cent this year. China’s curbs on steel output, global trade protection measures and robust domestic demand will keep prices firm going forward. Steel futures in Shanghai were at the highest in seven years on Tuesday.

CONSUMER GOODS

Fast-moving consumer goods (FMCG), which is ranked as the fourth-largest sector in the economy by think-tank India Brand Equity Foundation, is a bright spot in terms of demand. That’s given companies such as Hindustan Unilever, the local unit of Unilever, room to raise prices in some goods.

Godrej Consumer Products, a homegrown FMCG company, has already increased prices of some products and plans more in hair colors, toiletries and air fresheners with the impact likely to be reflected from this quarter. Dabur India has hinted at a 3 per cent to 4 per cent price increase in product prices to mitigate inflationary pressure.

CEMENT

It’s a mixed bag for cement manufacturers. Rising input costs are squeezing profit margins of cement makers and the monsoon season is a dampener, but higher government spending on building houses for the poor ahead of elections could jack up sales.

“While the demand momentum is healthy, rising supplies have not resulted in a significant increase in the cement prices,” said Sabyasachi Majumdar, senior vice president and group head at ICRA, the local unit of Moody’s Investors Service.

AVIATION

Some businesses aren’t in a position to pass on costs. Airlines haven’t increased fares despite higher fuel costs and a double-digit growth in passenger traffic. InterGlobe Aviation, which operates IndiGo, the budget carrier with almost two-fifths of India’s domestic market, reported a 97 per cent drop in its quarterly profit.

The actual BBC story is headlined "School spending: Multi-billion pound cash boost announced," and instead puts the number at £7.1 billion, criticizing the government's use of £14 billion pound figure as not the usual way of calculating spending

The two e-commerce firms typically hold annual festive season sales ahead of Dussehra and Diwali, which are due this year in October, when Indians make big ticket purchases such as cars and gold jewellery